Gradient Analytics Inc., an Arizona research company for hedge and mutual funds, has asked a California court to dismiss claims that it libeled Salt Lake-based Overstock.com and wrote critical reports about the company to push its stock down.
Gradient research reports criticizing Overstock.com were based on independent research that Gradient believed to be accurate, Gradient said in a filing Tuesday in state court in Marin County, Calif. Gradient denied Overstock.com's claims that it worked with hedge fund Rocker Partners LLP on reports aimed at pushing down Overstock.com's shares and delayed publication so Rocker could adjust its positions in the stock.
Overstock.com sued Gradient and Rocker in August, accusing them of collaborating on reports critical of Overstock.com that allowed Rocker to reap a profit on short sales of Overstock.com stock. The Securities and Exchange Commission has questioned three former Gradient employees about the allegations.
"Rocker never provided or offered inducements to Gradient to compromise Gradient's exercise of independent judgment," Gradient said in the filing. "No matter how objectionable or controversial, Gradient's opinions cannot be the basis of a libel claim."
Short sales are the sale of a security the seller borrowed in anticipation of making a profit by paying for it after the price drops. David Rocker, owner of Rocker Partners, said in an Oct. 14 statement that the lawsuit is frivolous and "an attempt to silence" Overstock.com critics.
"If they had merely answered the suit we would have been allowed to take discovery, and we think this is the last thing they want," said Jonathan Johnson, Overstock.com senior vice president for corporate and legal affairs. "This is trying to prohibit us from doing discovery and learning more about their bad acts."
Gradient asked the court to dismiss Overstock's claims under a California statute that protects parties from lawsuits aimed at stifling free speech. Gradient said in its filing that the Overstock.com lawsuit is meant to punish Gradient for publishing opinions and commentary with which Overstock.com disagrees.
Overstock.com, which sells excess inventory over the Internet, said on Oct. 28 that its third quarter net loss widened to $14.2 million, or 75 cents a share, from $3 million, or 16 cents, a year earlier. Overstock has posted an annual loss every year since it went public in 2002.